“Dreaming to own a home, people invested in real estate but many of the builders never delivered; promises were broken, dreams shattered!”–

Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.)

Uneasy Relationship!

The last two decades have witnessed a tug of war between the homebuyers and the builders. The homebuyers, as allottees, relentlessly struggled against fraudulent, rogue developers, as they faced endless delays of their projects; causing financial burden and mental stress to them.

Some of the builders duped the homebuyers’ big time and never completed the projects, thus, leaving them in a lurch. As the number of aggrieved homebuyers multiplied over the years, the number of people seeking an effective relief also increased manifold.

Homebuyers get Status of Financial Creditors!

The distressed home buyers had very few legal options as they were stuck with one sided agreements, although some did approach Consumer Courts or regular Courts but these were a time taking procedure.

But a big win came up for them when the Supreme Court of India bestowed on them the status of Financial Creditor under the Insolvency and Bankruptcy Code, on August 9, 2019. This decision was hailed as a landmark judgement and many homebuyers took this route to seek relief.

Anurag Singh Thakur, minister of state for Corporate Affairs stated in the Parliament, “A total 1,821 cases have been filed by homebuyers against builders under the Code.”

Homebuyers file plea in Supreme Court challenging IBC’s latest Amendments

Short Lived Happiness!

Within a few months, news started to trickle in that the real estate developers were very upset with this development and they alleged that the homebuyers were misusing the law. Citing that these tactics were leading to delay in project completion, the developers started to demand an amendment so that single homebuyers are blocked from approaching NCLT.

Thus, the happiness of homebuyers was very short lived and even before they were able to get positive results by applying for insolvency of the developer, the IBC 2016 has been amended.

The Insolvency and Bankruptcy Amendment Bill (IBC), 2019, threw a spanner in the homebuyers march towards long awaited justice as Section 3 of the said amendment has added new provisions to Section 7 of the IBC.

It states, “Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less.”

“This amendment has undoubtedly turned the wheels in favour of the Real Estate Developers!”

— Isha Malik (Company Secretary, MUDS Management Pvt. Ltd.)

Reaction to the Latest Amendment!

As was expected, the homebuyers were highly disappointed by such an amendment which states that a minimum threshold of 100 or 10 per cent home buyers, whichever is lower, is required to take a defaulting developer to the NCLT for starting the liquidation process.

On the other hand, the real estate developers and builders who were asking for such an amendment, have obviously welcomed the move.

Echoing the sentiments of homebuyers’ anguish against such a discriminatory law, Piyush Singh, Partner, PSP Legal, a Delhi based law firm, states, “Bringing a threshold just for homebuyers is arbitrary while there is no threshold for any other financial or operational creditors. Even a single financial or operational creditor (other than homebuyer) can file an application against the company with NCLT for starting of the liquidation process.”

Plea in Apex Court!

As a last resort, homebuyers moved Supreme Court and several writ petitions have been filed on behalf of homebuyers.

There are several points that have been brought out in these writ petitions against the discriminatory nature of this amendment. One of the petitions states“…Real Estate Allottees who are Financial Creditors under Section 5(8) of the IBC have been rendered remediless and have been subjected to absolute discrimination by putting a precondition/threshold in the form of minimum number of Allottees of a particular project required for filing an application for triggering the code under Section 7 of the IBC, which is not applicable to other financial creditors under IBC.”

Furthering its stand to reveal and expose the bias that this amendment creates, the same writ petition states, “Because the Ordinance runs in complete contradiction to IBC and imposing such a precondition on the filing of the application under Section 7 of the IBC is completely against the objective of the IBC, as the pre-condition for any financial creditor to approach the adjudicating authority is quantum of the debt and not the number of financial creditors.”

Aditya  Parolia of PSP Legal, who has filed a writ petition on behalf of 11 buyers from across projects, is perplexed and astounded by the complexity of this law and feels it would erode the right of the homebuyers. He says, “The condition imposed on the buyers to file a petition under IBC is highly arbitrary. How can homebuyers be expected to put together this number and then approach the court. There are thousands of cases pending against the builders in NCLTs across the country which in the light of this Ordinance will be automatically dismissed.”

Points of Dissent!

The multiple writ petitions have objected to the Amendment and its specifications on many fronts. Some of the major grievances against it are:

1. The Ordinance is ultra vires to the Constitution of India and in violation of Articles 14 and 21 as it denies them accessing their Fundamental Rights.

2. It amounts to the creation of a “class within a class” which is “unconstitutional and manifestly arbitrary”.

3. The Ordinance will adversely affect allottees as it has been given retrospective effect.

4. Allottees will not only lose their money, but home and the right to move NCLT too.

5. In addition to these, there are practical issues that will come in the way of homebuyers who wish to pursue insolvency against their real estate developers.

Piyush Singh,Partner, PSP Legal, a Delhi based law firm, argues against the amendment’s impracticability and points out, “Most of the applications filed with NCLT are filed in cases of under construction projects and there is no mechanism through which a homebuyer who is willing to file an application under Section 7, to get the insolvency proceedings started against the defaulting developer, can contact other homebuyers.”

A Temporary Relief!

A Supreme Court bench comprising Justices R F Nariman and Ravindra Bhat issued notice to the government of India on petitions filed by homebuyers against the latest amendment of the Insolvency and Bankruptcy Code (IBC) 2016. This amendment has introduced a minimum threshold for filing an application with the National Company Law Tribunal (NCLT) against a defaulting developer.

Further, taking cognizance of the homebuyers’ petitions pending in NCLTs, the Bench has ordered status quo on the matter.

Talking about the partial relief granted by the Apex Court Aditya Parolia of PSP Legal, Advocates & Solicitors, one of the representatives of petitioners, analyses this and says, “This basically means that the NCLT will have to maintain status quo with respect to the applications already filed by homebuyers and investors against defaulting developers.”

“This is an interim relief and the Supreme Court will be scrutinizing the legality and constitutional validity of this amendment based on the facts presented by both: the government and the homebuyers!”

-Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.)

Optimistic Expectations!

The words of Abhay Upadhyay, president, Forum for People’s Collective Efforts, a Kolkata-based consumer body, very aptly sums up the expectations of all the aggrieved Homebuyers.

Abhay says, “The amendment that has been brought by the central government despite our objections is definitely unfair for the homebuyers. Now that the matter has moved to the Supreme Court, we hope that the Supreme Court will take cognizance of this issue and will give appropriate directions to the central government,”

Way Forward!

As the matter is now in the Apex Court, the homebuyers are hopeful of a favourable judgement as they feel they have a strong case against this amendment.

For the time being the status quo by the Supreme Court is being looked upon as a relief for those homebuyers who have their insolvency applications pending in the NCLT.

Which way things will go will depend on the facts and arguments presented by both sides and also how the Bench perceives it.

If the Court is convinced of the fundamental flaws, as being pointed out by the homebuyers’ multiple petitions, then obviously the order will come in favour of the aggrieved homebuyers.

The point of concern still is in favour of the homebuyers, who have lost money, mental peace and facing extra burden of home loan repayments.

What is needed in this hour of crisis is that the real estate developers understand their responsibility and deliver as they have promised.

A fair deal is what the homebuyers are demanding, and if that is delivered, then there is no need for them to approach NCLT or any other legal recourse!

“In this ‘wait and watch’ situation all reasonable stakeholders are hopeful that the Supreme Court will take note of the blatant discrimination against the homebuyers and rectify it!”
-Shweta Gupta, Founder and CEO, MUDS

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